Think outside the box: Originating non-mortgage business loans Mitchell Chapmannon-typical mortgage loan products
During the past several years, mortgage brokers have enjoyed
tremendous personal, financial and professional success as interest
rates continued their steady decline. Riding the avalanche of the
residential refinancing frenzy, scores of newcomers entered the
mortgage profession seeking to capitalize on this no-brainer
During the fourth quarter of 2003, originations dropped 48
percent, leaving the market over-saturated with brokers competing
for fewer transactions. In response to a stronger and growing
economy, the Federal
Reserve continues to raise short-term interest rates. The 2005
Mortgage Bankers Association
projections indicate a 22 percent decrease in overall originations
and a 35 percent decrease in refinancing activity compared to 2004.
As origination and refinancing activity continue their downward
trend from the historical high of third-quarter 2003,
forward-thinking mortgage brokers continue to seek other streams of
income that will be financially rewarding and helpful in serving
Creative residential brokers have increased and expanded their
programs to include sub-prime, jumbos, stand-alone second mortgages
and combos. They have even taken the leap into the forbidden zone
of small-balance commercial mortgages. However (and I'm sad to say
it), the majority of commercial brokers have sat still and allowed
their residential counterparts to gain market territory, leading to
There is an enormous and widely untapped opportunity that exists
for both residential and commercial mortgage brokers. However, both
must be willing to become teachable, flexible and progressive in
their thinking before they can gain a competitive edge by working
outside the box.
This virtually untapped opportunity exists in originating
non-mortgage business loans. Many brokers from both sides of the
aisle are finding this to be an extremely lucrative opportunity
with numerous financial, professional and personal advantages.
There are several reasons why residential and commercial
mortgage brokers should venture into the wonderful world of
non-mortgage business loans. Here are just a few of the
- You already have an existing database of clients to offer
- Statistics indicate that business owners account for
approximately 25 percent of a residential broker's database and
almost 100 percent of a commercial broker's database.
- There are no RESPA or licensing requirements for originating
non-mortgage business loans.
- There is very little competition and the market is wide
- Banks are continuing to tighten their submission and approval
standards. As a result, banks are turning away their existing
clients and turning them towards non-mortgage commercial loan
- Savvy business owners are always looking for alternative
financial solutions that can provide additional working capital or
expand their businesses.
Some of the various vehicles employed to originate non-mortgage
business loans include unsecured working capital through lines of
credit and/or term loans (at bank rates and terms); accounts
receivable financing (not factoring); inventory and customer
purchase order financing; equipment leasing; and special programs
for medical practices, doctors and other professionals.
Among all of the non-mortgage business loan programs, my
personal favorite is the unsecured working capital program, which
provides either a line of credit and/or term loan to the business.
Over the years, we have successfully used this program to assist,
enhance and close numerous residential and commercial real estate
acquisitions and refinances.
At this point, you may very well be thinking to yourself, "How
is this possible? Can you give me an example of how this might
assist my business clients?"
Thank you for asking! First and foremost, using unsecured
working capital - either in the form of a line of credit or a term
loan - is possible, ethical and most importantly, lawful. Lets say
you have a business client who has a two-year-old business, with a
personal credit score of 660 or higher. Your client can even go
full-doc and is aggressively seeking to purchase another property,
or refinance their current property. You go through the obligatory
steps of pulling credit and completing the 1003. Everything looks
great, but you realize after numerous conversations they will never
be able to close, even on a refinance, because they are short of
cash. Now what are you going to do? If you are not originating
non-mortgage business loans, your deal is dead! However, if you are
a forward-thinking mortgage broker, you can now close this deal
because you have access to an unsecured working capital
In closing, let me ask this question: How many deals have you
lost in the past because your business client was short of cash?
Now, how many of these very same deals would you be able to close
if you could help these very same business clients obtain unsecured
Now is the time to think outside the box!
Mitchell Chapman is managing director of Business Finance
USA, a business consulting firm that provides alternative financial
solutions for small businesses. He may be reached at (954) 548-1455
or e-mail at [email protected]